Buyers, It's Your Move
Contracting Market Pulls Power Away From Sellers

By Tomoeh Murakami Tse
Washington Post Staff Writer
Saturday, September 30, 2006

And so the great real estate boom has ended. Left in its wake are anxious sellers and hopeful renters, fidgety buyers and freebie-wielding developers, deserted open houses and blocks crowded with for-sale signs, scaled-back retirement plans and first-time homes that suddenly seem within reach.

Signs of a deteriorating market are everywhere -- even in Prince George's County, where homes are still relatively inexpensive and where the housing market conditions had remained close to boom levels even as other neighborhoods cooled dramatically.

"The downturn in the Washington housing market is in full swing," said Mark Zandi, chief economist with Moody's Economy.com. "The market is weak and getting weaker."

Sales have plunged in every jurisdiction; in August, the latest figures available, 8,300 homes changed hands in the region. That's down by a third from a year ago, according to Metropolitan Regional Information Systems Inc., the area's multiple listing service, which tracks mostly resale homes. The spring home-selling season is long over, but its remains are scattered all around the region. As of the end of last month, 46,000 homes were on the market, up from 21,000 the same time last year.

And after a full year of slowing sales and more houses on the market, the median prices of existing homes in many parts of the region have begun to show year-over-year declines for the first time in half a decade. However, in other parts of the region, median prices have continued to rise, especially for single-family houses. The median is the point at which half of the homes sell for less and the rest for more.

Nationally, the median price of existing homes fell 2 percent in August compared with a year earlier, marking the first time in 11 years that prices have fallen in a 12-month span, the National Association of Realtors said this week. "This correction is necessary. Without it, sales would continue to plummet," said David Lereah, the trade group's chief economist.

New-home median prices nationally are also down from August 2005, according to the Commerce Department. Locally, average prices for new homes were down 6 percent in August compared with a year earlier, while sales dropped 11 percent as inventory soared, according to Hanley Wood Market Intelligence.

So what now? Have prices hit bottom, or will they decline further? Is now a good time to buy, or a fool's time to buy? Should sellers accept a lowball offer before the market really sours, or simply wait a few months until ambivalent buyers finally realize the market isn't crashing?

Most analysts don't foresee a free-falling housing market. The region's job growth and solid economy won't allow it, they say. Still, they stressed, things will get worse before they get better -- housing has simply become too expensive for too many people.

Just how much worse, and for how long, depends on whom you ask. Some economists say prices will bottom out before spring, others say it will take much longer.

But consider: The Realtors group, which tends to an optimistic view of the market, lowered its home sales forecast earlier this month, saying there is "an inventory and price imbalance."

"We're still in a contraction," Lereah said in an interview this week, adding that he expects to see year-over-year declines in prices for several more months. "We really don't know how long this will last and the magnitude. . . . My educated guess here is that it will take the remaining months of the year."

Confusing times? Most definitely. Feeling uncertain? You're not alone.

But one thing is clear: Buyers are overwhelmingly in control now.

"It's as strong a buyers' market as I've seen in many years," said Zandi, who thinks prices won't hit bottom for nine months to a year. "Buyers have the upper hand in all their negotiations with sellers at this point and that bargaining power will, I think, only increase in coming months."

Carol and Demetrios Dekazos, renters in Alexandria, hope to use that negotiating power. Sensing opportunity in the current market, the couple recently resumed their house search, a year and a half after bidding wars and escalating bids forced them to retreat. "We were getting killed out there with contracts," said Demetrios Dekazos, 43, who works in financial management in the District.

Purchase prices could get lower, but the rental market is getting tighter -- rents have risen about 8 percent in the past year, according to Alexandria-based research firm Delta Associates -- and the Dekazos are now looking forward to becoming homeowners, on their terms. "We feel like we now have a chance," he said.

Buyers such as the Dekazos, analysts and real estate agents said, will do well to look for motivated sellers in neighborhoods with a lot of houses vying for attention.

According to the local multiple listing service, the drops in prices in the region are generally occurring in areas that saw rapid growth during the boom, both in construction and price appreciation. For the most part, though, the declines have not yet been significant enough to lure buyers off the sidelines.

Year-over-year median prices were down 4 percent in August in Prince William and Loudoun counties, whose share of unsold homes account for roughly a quarter of the homes on the market in the region. Prices were also down in Arlington (14 percent), the District (9 percent), Fairfax County (6 percent) and Alexandria (2 percent). Condo sales have been hit particularly hard. In Arlington, the District and Alexandria, condos account for more than half of the homes on the market. In Fairfax County, they account for a quarter.

Many of the outlying areas are still seeing gains: Calvert County homes, for example, posted a 10 percent August-to-August increase, while Charles and Anne Arundel counties saw 5 percent appreciation. Prince George's County had a 9 percent increase -- a healthy gain, but hardly the 20 to 30 percent jumps seen in the boom days.

"It's a good time to take stock of the market and really watch what's going on," Zandi said. "Are the sellers really interested in selling now or are they waiting to get a better price?"

David Hawkins, managing broker at McEnearney Associates in Alexandria, said desperate sellers constitute only a "moderate" portion of the market. "There are still some sellers who have an unrealistic view of where the market is today, who are not in a position of having to sell," he said. "They will sell if they can get their price."

Those who really do want to sell "need to recognize that they need to be the best house at the best price this week," Hawkins added. "What the neighbor got a year or two ago has no bearing on the market now."

Where buyers see value, quick sales are still taking place.

Kristina Hayden and her husband, Joseph Fagg, both 26 years old with jobs in information technology, recently sold their condo in the crowded Woodbridge market. They got their asking price after receiving three offers in one week, they said.

"People in our neighborhood were a little greedy," she said.

"We were happy just to have fair market value," he added.

The couple had originally planned to move into a condo in Alexandria but had to scramble when developers of the project decided in May that they could not go forward with their plans because of slow sales. But not to worry, the couple found a two-bedroom in another condo conversion project in Arlington.

The incentives, Hayden said, were "amazing."